Lew: WH action on offshore tax deals in ‘very near future’

Treasury Secretary Jack Lew said Monday that the Obama administration would decide “in the very near future” what it can do on its own to discourage U.S. companies from shifting their legal address abroad for tax purposes.

Lew insisted that a broader revamp of the business tax system would be the best way to deal with the recent rash of cross-border deals known as inversions. The White House and congressional Democrats have sought legislation targeted at the offshore tax deals in the interim.

“Any action we take will have a strong legal and policy basis but will not be a substitute for meaningful legislation — it can only address part of the economics,” Lew said at The Urban Institute. “Only a change in the law can shut the door, and only tax reform can solve the problems in our tax code that leads to inversions.”

President Obama, who has dubbed companies that go offshore “corporate deserters,” first opened the door to executive action on inversions last month, prompting lobbyists and lawmakers to keep a close eye on the Treasury Department and the White House.

But on Monday, Lew, who has called for a greater sense of “economic patriotism” in criticizing the increase in inversion deals, offered no further clues on what steps the administration might take, even as he said that Washington urgently needed to act.

“The pace of these deals has accelerated in recent months, with an increasing number of corporations on the verge of completing such mergers and many more, across a variety of industries, in the works,” Lew said.

By pushing so hard for legislation, the secretary’s remarks appeared to increase the chances that any administrative action would be delayed until after lawmakers leave Washington to campaign for reelection,

Congressional Republicans have, so far, shown little interest in legislation targeting inversions, one of the reasons the White House has said they’re looking at executive options.

Sen. Orrin Hatch (Utah), the top Republican on the tax writing Finance Committee, told reporters on Monday that he didn’t expect any inversions deal to materialize in the next couple of weeks.

Finance Chairman Ron Wyden (D-Ore.) has said for weeks that he and Hatch were working to find a bipartisan agreement on the offshore deals. But Hatch said that Democratic leaders were just trying to make a campaign issue out of the recent mergers.

“What they’re talking about is all political,” Hatch said. “And that doesn’t help us try and get a resolution to it.”

As for Lew’s comments on Monday, Hatch said: “There wasn’t much to it.”

Democratic aides said Monday that they also didn’t expect the White House to unveil any executive actions while Congress was in town.

Democrats continue to push legislation and have made the offshore tax deals a central part of their broader political message on economic fairness ahead of the midterm elections. Under leading Democratic proposals, U.S. companies that merged with smaller foreign competitors would generally still be counted as American for tax purposes.

Sen. Charles Schumer (D-N.Y.), the No. 3 Democrat in the Senate, plans to introduce legislation this week on a maneuver known as earnings stripping, a Democratic aide said. Under the maneuver, American subsidiaries of foreign companies can take a tax deduction on interest payments after getting a loan from their parent corporation.

In a draft of Schumer’s measure, companies that inverted as far back as 1994 would face a reduction in the amount of interest they can deduct.

Tax analysts have said that earnings stripping could be an area where the administration could take action as well. One Democratic aide said Monday that Treasury knew the general direction it could take on administrative actions, and would likely seek to blunt the economic incentives for the offshore deals.

Washington’s interest in inversions intensified in May, when the drug giant Pfizer sought to take over British pharmaceutical company AstraZeneca.

Since then, the fast food chain Burger King became probably the most prominent U.S. company to announce plans to reincorporate abroad. The pharmacy chain Walgreen, on the other hand, pulled back from a potential inversion deal, citing consumer pressure as a key factor.

In his Monday speech, Lew stressed that there previously was bipartisan interest in curbing the offshore deals, noting that former President George W. Bush signed the last anti-inversion legislation in 2004.

He also defended Democrats’ desire to make any inversion measure retroactive to May, when Pfizer announced its plans to take over AstraZeneca. GOP lawmakers and business groups including the U.S. Chamber of Commerce have objected to that idea, saying it would be too punitive to companies.

“To prevent a rush of corporate inversions to get in under the wire before a change in the law, legislation should work retroactively, applying to any deal after early May of this year,” Lew said, noting that the 2004 law was also retroactive.

More broadly, Lew emphasized that the administration and congressional Republicans have some similar goals when it comes to revamping the corporate tax code.

Both parties, Lew said, want to bring down the corporate rate and scrap some tax breaks. The secretary also noted the overlaps between House Ways and Means Chairman Dave Camp’s plan (R-Mich.), which got little support from both GOP leaders and the rank-and-file, and the administration’s, especially when it comes to infrastructure spending.

“Both Democrats and Republicans agree that the ultimate goal of reform should be to increase America’s competitiveness,” Lew said.

This story was updated at 7:44 p.m.